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Credit card details are up to date as of May 1st, 2019. For the most accurate and up to date information, visit the issuer's website.
Credit cards make everything easy—including racking up debt.
An unforeseen emergency, a large purchase, or a spend-heavy time of life like the beginning of a college semester can result in a hefty credit card bill. Making things worse, if the full amount is not paid off in a single billing cycle, your credit card debt can go from hefty to horrific pretty fast.
“Credit card debt can be crippling because of the high amount of interest you're paying,” says Barry Choi, Canadian personal finance expert and owner of MoneyWeHave.com. “Credit cards typically charge 20% interest, regardless of how much debt you're holding, and that's quite a premium.”
For many young Canadians, anxiety about money coupled with fear or even shame leads to denial. Financial issues, especially unpleasant ones, take a back seat to other concerns simply because they seem too overwhelming to tackle head-on. This is a bad strategy. When you're holding credit card debt, your entire financial picture is affected.
“It can be difficult to manage other day-to-day expenses or save for your future,” says Choi. “And it may also affect your credit score – which could mean you may not qualify for a loan or mortgage.”
For all these reasons and more, it’s crucial to pay down your credit card debt as quickly and efficiently as possible. This article will give you some tested and true strategies and teach you how to pay off your credit card debt fast.
Assess your Current Financial Picture
Nothing inspires panic like financial problems, but you owe it to yourself to take a deep breath. This is one large problem that you can approach in smaller increments.
The first step is a complete and honest assessment of your financial picture. Write down all sources of income so you have an idea of what is coming in every month. Next, map out a realistic monthly budget. This should include the obvious expenses such as rent, phone, and groceries, but be ruthless with yourself. Do you also buy expensive coffees during the week? Put it in the budget. How about restaurant meals, Uber rides, or Amazon Prime? All these need to be in your budget.
Next, identify the areas where you can save. Even one less fancy cocktail per week will make a difference, and these small changes really add up.
“I know people won't want to hear this,” Choi says. “But cutting out the fun stuff such as eating out or travelling is a must since you can use that money to pay down your credit card debt.”
One word of warning, though: when making your budget cuts, make sure they’re reasonable and not too restrictive. You’re far more likely to overspend if you’ve not left yourself a little wiggle room. All your work building a workable budget will be useless if you don’t stick to it.
Once you’ve got your budget in hand, it’s time to build a long-term plan. Your budget is part of your plan, but it’s not the complete picture. According to Choi, developing (and sticking to!) a long-term repayment plan is the number-one tip for paying down credit card debt quickly. In this next section, we’ll look at different styles and strategies to consider including in your debt repayment plan.
Need help putting together a budget that works? Try YNAB (You Need a Budget)– an easy online personal budgeting program that can help you quickly gain control of your money, get out of debt, and save more money faster. There’s an even an app that you can download onto your phone, making tracking expenses a cinch.
Avalanche or Snowball method?
There are two general ways that people go about repaying their debt, each with its own pros and cons. Understanding your options—and knowing what motivates you most—will go a long way to helping you come up with a plan you can live with.
The so-called “avalanche method” is when people pay the minimum balance on all their cards, but put any extra towards the credit card debt with the highest interest rate. Mathematically speaking, it’s the most effective way to pay down debt, as it chips away at the balance producing the most interest.
“By doing this, you pay less interest over the long run,” confirms Choi.
However, math isn’t everything. Remember: You’re building a long-term debt repayment plan, so it needs to work for you. Known as the “snowball method,” many people prefer to focus on the credit card with the lowest remaining balance so they can get a win under their belt fast. The main benefit here is the morale boost that comes with each debt that’s paid off, and research suggests that these victories are effective in keeping people motivated.
The bottom line? Go with whichever style suits you best – just stick to it!
Choose your Credit card Products Wisely
If you do it right, you can actually get your credit card itself to help you lower your debt. Consider the following savvy strategies:
Get a lower interest credit card
Transferring your balance to a card with lower interest is an effective strategy for minimizing your debt on your balance and new purchases. For instance, the American Express Essential™ Credit Card offers a fixed 8.99% interest rate on purchases —the lowest fixed rate in the country. To find out more on this card, visit the issuer's website.
Low-interest or interest-free periods of time on balance transfers can also be leveraged to your great advantage. The MBNA True Line® Mastercard® has a crazy-good balance transfer promo: transfer a balance within 90 days of account opening, and you'll pay 0% promotional annual interest rate for 10 months, with a fee of 3% of the amount transferred (minimum fee of $7.50). As if that's not enough, this card also has no annual fee, and unlike other cards, offers a competitive purchase interest rate of 12.99% — a rate that even applies on balances carried forward after the promo ends or if you miss a payment. All of these features will give you the time you need to get you back in the black.
*This offer is not available for residents of Quebec. For Quebec residents, please click here.
Take advantage of points programs
Chances are you will still be using your card for everyday expenses, so why not make those purchases work for you? If your card has a program, you can rack up points for buying things like groceries, gas, or drugstore items, and put the money you saved towards your outstanding debt.
The most efficient way to manage this strategy is to track your most frequent expenses by category (most cards offer this information online) and choose a points program that will benefit you most. For example, if your expenses fall heavily into the gas and groceries categories, you’ll want to consider the Scotia Momentum ® Visa Infinite* Card which gives 4% cash back on those purchases—the highest of any card. Additionally, you’ll earn 2% back on drugstore purchases and recurring bills. This means you can actually earn while paying your cellphone, internet, and utilities. Every other purchase gets a 1% return, making this a robust offering for $99 annually.
If you travel extensively, you may get more bang for your buck with the TD® Aeroplan® Visa Infinite*. This card commands a hefty $120 annual fee but offers some incredible perks that make it completely justifiable. For one, you'll get an uber generous welcome bonus of 25,000 Aeroplan Miles (the equivalent of one long-haul round trip flight reward!) as well as great potential to earn miles on everything you charge to the credit card. It also comes with other perks, such as travel insurance (including travel medical and car rental), priority check-in, one complimentary first checked bag on Air Canada flights, and one free guest pass to the Air Canada Maple Leaf lounge annually. Meanwhile, you can put the money you saved towards your outstanding credit card debt and get it paid off pronto.
*This offer is not available for residents of Quebec. For Quebec residents, please click here.
Get a cashback card
As they say, cash is king. The best cash back credit cards let you earn a small percentage of your spending back in cash. With a product like the Tangerine Money-Back Mastercard, you receive a percentage of your purchases back in cash that you can apply to your debt load. Highly customizable, this card lets you choose which spending categories to apply 2% cash back to, and you still earn 0.5% returns on all other purchases. If that's not enticing enough, maybe the lucrative, limited-time welcome offer will win you over. As of April 22, 2019, new Tangerine Credit Card Account holders can earn 4% Money-Back Rewards on purchases in up to three Money-Back Categories of their choice, for the first three months. Apply now, because this promo expires on July 31, 2019.
Negotiate with Your Credit Card Company for Lower Interest
Even if you’re happy with your current card, you might be able to strike a better deal. Few people are aware of it, but one way to get a lower interest rate is to simply call your credit card company and ask! The worst they can do is say no, but more likely than not they will offer you a reduced rate for a fixed term.
Consolidate Your Debt
Consolidating your debt can save you stress and money. Instead of managing several monthly bills, each with their own interest rate and due date, consider consolidating your debt load by transferring your balance to a low-interest credit card, or by taking out a personal term loan with a leading online lender like motusbank. Getting a personal loan with motusbank is simple – all you need is an internet connection and a not-terrible credit score.
“These loans and credit cards typically come with a lower interest rate so you could easily cut the amount of interest you're paying in half every month,” says Choi. “The key is to use that money you're saving on interest and apply it to any outstanding credit card balance that you may have.”
This is good advice no matter what strategy (or strategies) you decide on. If you find yourself bogged down with credit card debt, resist the urge to go into denial. Instead, develop a budget and debt repayment plan, maximize the benefits you receive through your credit card products, and stick to your repayment schedule. You may be surprised at how quickly you can repay your credit card debt.
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